The Best, Vital Aspects of E&O Insurance for Insurance Agencies
TLTR: This article explores why E&O insurance for agencies is essential. Furthermore, it also explores what the policy means and the coverage that it provides for agencies.
In the corporate world of insurance, making mistakes can be costly. Especially when it comes to working with insurance customers. On the off chance that you slip up and it proves to be disadvantageous to your clients, you could be facing a lawsuit. One of the worst things an agency can experience is a lawsuit from one of its clients.
Thus, if your agency frequently deals with insurance clients and advises them, then you need some form of protection. Especially if you recommend them insurance products, which could subject you to potential lawsuits if your advice causes your client some form of loss. That’s where an E&O insurance comes into play.
In this blog
- What is E&O Insurance?
- Who Needs E&O Insurance?
- What Does It Cover?
- Is There Errors and Omissions Insurance for Insurance Agencies?
- How Much Does E&O Insurance for Agencies Cost?
- Additional Coverage to Pair With E&O Insurance for Agencies
- What Are Some of The Common Claims For E&O Insurance?
- In Conclusion,
- Frequently Asked Questions
What is E&O Insurance?
Errors and omissions (E&O) insurance helps protect your business against lawsuits related to professional errors in services that your company provides. Whether you’re just starting out or have been established for decades, E&O insurance could save your business from a financial crisis. This policy will have your back in the event that someone makes a claim about misinformation or negligence during product or service provided by you.
This type of insurance is quite important for corporate establishments. As per Statista, Berkshire Hathaway alone leads the U.S. marketplace for maximum written premiums when it comes to medical errors and omissions. In 2020, they wrote 1.71 billion worth of direct premiums for medical malpractice.
Basically, E&O insurance for agencies is a type of liability insurance. It covers costs related to court fees and any settlements as mentioned when an insurance contract is issued. Such type of policies is necessary for insurance agencies as they provide coverage when a company is held liable. Usually, this policy is included in a professional liability insurance for businesses.
Who Needs E&O Insurance?
E&O insurance is recommended for any professional company with employees. It could benefit any type of business that offers one or more services to clients, including digital marketers, PR firms, graphic designers, and others who might act as an intermediary between client and product.
And speaking of intermediaries, E&O insurance will definitely be useful to insurance agencies since they act as a bridge between customer and insurance companies.
What Does It Cover?
E&O insurance for agencies primarily covers legal expenses related to lawsuits. But these can arise in difference scenarios. Here are some of the situation’s errors and omissions insurance provides coverages for:
Coverage Against Negligence
While running an agency, your employees can underperform in their responsibilities and tasks. This can lead to a client being unsatisfied. Worse, it could lead them to file a lawsuit. For example, a customer can claim that your service was inadequate which led them to having lower coverage. When they file a lawsuit against you in this situation, you could face significant financial loss if you do not have proper insurance. In such situations, E&O coverage will cover legal expenses, attorney fees, and court fees.
People can make mistakes. It is a human trait. As an agency, you and your employees can make mistakes. While these mistakes aren’t intentional, your clients may not perceive it as such. Mistakes can leave your susceptible to lawsuits. And when a client sues you over a mistake which costs them financially, your agency could face significant loss. E&O coverage with protect you from such losses.
Agencies are responsible for providing clients with insurance products that fulfills their requirements. They also connect clients with carriers. Clients usually expect to get what they want as well as something that exceeds their needs and expectations. Most of the times you can and will meet their expectations. But, if your business fails to provide the professional services you guaranteed, you could face a lawsuit from the client. E&O insurance policy will cover your legal expenses in this case.
Is There Errors and Omissions Insurance for Insurance Agencies?
There are E&O insurance options for agencies that work with an insurance carrier. Working with carriers will come with many instances of potential miscommunications, inadequate service, and misinformation. Carriers do take such matters seriously and can readily take legal action against smaller insurance agencies they work with.
Therefore, E&O insurance is especially important as your agency gets bigger, works with multiple carriers, and has more employees. This coverage can protect you from financial crisis if a client or partner carrier claims there was misinformation provided by an agency during the process of service delivery — in other words, a failure to provide proper information.
E&O insurances handle claims against businesses when their clients say they were hurt financially or otherwise by untimely delivery of service — in other words, a failure to uphold their obligations. E&O insurance can help agencies pay for the cost of investigating and settling claims from clients who believe they have been wronged in some way.
Note: E&O insurances also often handle issues related to copyright infringement or other violations at the federal level.
How Much Does E&O Insurance for Agencies Cost?
The cost of E&O insurance for agencies varies from one agency to the next. But on a general note, it depends on the following factors:
Agency size can play a significant part in determining the cost of your errors and omissions insurance. With a larger number of employees, you will have higher risks. And with higher risks comes higher rates in policies. Also, with a smaller number of employees your agency can get lower rates.
Business location will affect insurance rates given the state you operate in. Another thing to note is that some states can have higher coverage requirements than others. Make sure to check with your state’s insurance governing body for the same.
Coverage limits as per your requirements can either increase or decrease the overall cost of your policy. With a higher amount you will have a fair amount of coverage if you have bigger lawsuits, but you will need to pay more premium on a monthly basis. While if you opt for a lower coverage amount on your policy, you will end up paying less monthly premium.
Agency revenue can potentially invite higher risks. When your agency earns more, the chances of errors and mistakes can also increase. This can lead to higher frequency of lawsuits from unhappy clients if you’re not consistent with the quality of your service.
Past claims history is an important factor in deciding the price of your E&O coverage. If your agency is one that frequently faces multiple lawsuits, you could end up paying higher insurance rates.
Note: According to The Hartford, the average cost of E&O insurance usually amounts to $500 to $1,000 per employee annually.
Additional Coverage to Pair With E&O Insurance for Agencies
While E&O insurance protects your agency from lawsuits, it isn’t an all-encompassing policy. It doesn’t offer adequate protection against situations that aren’t relevant to professional errors. As an insurance agency, you should consider the following policies:
General Liability Insurance
The policy covers any relevant expenses that involve customer property damage, injuries, as well as slander. General liability insurance also covers legal defense costs related to client property damage or injuries.
Worker’s Compensation Insurance
This policy covers the medical expenses and lost wages of an employee if they suffer an injury on the job in such a way that they are unable to continue their work. Workers compensation insurance policy is mandatory in most states for all types of businesses.
Business Owner’s Policy (BOP)
This policy is a bundle policy that combines a general liability insurance along with commercial property insurance. It provides coverage against any damage to your business client due to your actions. Furthermore, business owners policy also covers for any damage to the business property due to covered natural disasters such as fire, rain, and lightning to name a few.
Employee Practices Liability Insurance (EPLI)
EPLI is a type of addition you add along with your E&O policy. Employment practices liability insurance covers agencies against situations involving unfair conduct. This includes situations such as unfair treatment, wrongful termination, sexual harassment allegations, discrimination, and such.
What Are Some of The Common Claims For E&O Insurance?
Sometimes there’s a misunderstanding that insurance agencies aren’t subject to lawsuits. But that’s not the case. Insurance agencies are also susceptible to E&O lawsuits. Regardless of how big or small your insurance agency is, you can face lawsuits by clients for your actions.
Here are some of common examples of E&O insurance claims:
Lack of Communication
While working in insurance, an employee must provide the correct amount of information as well as documentation to supplement it. Failure to do so could lead them into legal trouble. If there is a lack in communication skills and proper understanding from their client or partner about what they expect from a project or task at work, it could result in negligence claims.
Similar examples include cases involving omissions where an individual fails during one’s duty yet still causes harm even without intention because they left something undone that would have prevented further damages. If your agency goes through such situations, it could face serious losses. Thus, having E&O insurance as a backup can safeguard your agency.
Breach of Contract
Reading a contract word for word is very important. A breach of contract can have devastating consequences. Your client or partner could sue you financially if they are not satisfied with the performance of what’s written in the contract.
So, what’s the most critical step when drafting a legal agreement? Defining every term clearly at first so there isn’t anything left up to interpretation down the line. Not doing so could land you and your agency into an E&O claim from dissatisfied clients. With a proper errors and omissions insurance, you can be covered against any settlements and legal costs.
Majority of an insurance agency’s work is done through computer systems and insurance software. Often, software can be bugged and end up with a malfunction. Such malfunctions to system software can cause financial losses to clients and partners. In such a situation your agency will be liable for the damages.
Insurance agencies can be sued in such scenarios. While the software manufacturer might also be responsible for providing faulty software, if the malfunction was due to the agency’s action, then the manufacturer isn’t liable. In order to stay covered in such a situation an E&O insurance is important. Agencies should pair this policy with a cyber insurance for extra backup.
Running a professional agency can require some level of expertise and skill. And with it comes an increased chance of liability when that very expertise falters. An agency has the vital role of bridging clients and carriers which are always tied with legal responsibilities. And being prepared for the times when you are held liable is absolutely necessary.
Thus, E&O insurance for agencies is a safety net to protect you and your business. While it may seem like a financially stressing and taxing expense to bear, the benefits it holds when you get into a legal pickle with a client is worth it.
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Frequently Asked Questions
How Vital Is It to Have an Active E&O Policy?
Errors and omissions policy can only provide you benefits as long as it is active. Let’s say you retired as an agent, and discontinued your E&O policy. One day an old client of yours files a lawsuit against you for inadequate information when you provided your services. Since your policy is no longer active you will have to bear the hefty costs of the lawsuit from your own pocket.
Therefore, in order to stay covered you need to have an active E&O coverage during the lawsuit and the when the incident referring to the lawsuit.
How Much E&O Insurance should an agency get?
This question is best answered by figuring out your agency’s risks, needs, and budget. Although you can save quite a bit of money by opting for a cheaper E&O plan, you might end up going over its coverage limit from an expensive lawsuit. Therefore, it is best to assess your potential risks and coverage needs before purchasing your errors and omissions insurance.
Does E&O Insurance Have Any Exclusions?
Yes, it does. E&O insurance policy terms and coverage can differ depending on which insurer you approach but the most common exclusions are:
- Property damage
- Bodily injury
- Criminal and fraudulent acts
- Copyright infringement
It’s always best to be thorough while reading your E&O policy. Furthermore, it’s always best to consult with a professional familiar with that line of insurance.
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